Herbalife Nutrition (HLF) Beats On Q4 Earnings, Sales Up Y/Y

Herbalife Nutrition Ltd. (NYSE:HLF) posted fourth-quarter 2018 results, with earnings beating the Zacks Consensus Estimate for the fifth consecutive time. However, the bottom line declined year on year due to higher expenses.

Further, the top line missed the consensus mark, but improved from the prior-year quarter’s tally. The year-over-year upside was backed by sustained growth across most regions and strong rise in volume points. In fact, such improvements are aiding this Zacks Rank #3 (Hold) stock, which has rallied almost 38.5% in the past year compared with the industry’s 4% rise. Additionally, the company provided view for the first quarter and for 2019.

Detailed Look at Q4 Performance

Adjusted earnings of 63 cents per share beat of the Zacks Consensus Estimate of 61 cents. However, the bottom line declined almost 3.1% year on year due to expenses of approximately $8.2 million (4 cents per share) related to China Growth and the Impact Investment Program.

Net sales of $1,186.6 million advanced nearly 8.5% year over year, backed by sales growth in five out of six regions. Moreover, the quarterly results benefited from strong volume point advancement. However, net sales missed the Zacks Consensus Estimate of $1,195 million.

Volume points in the reported quarter advanced 11.8% to 1,461 million. This marks the highest fourth-quarter volume points achieved by the company. Further, we note that the company has successfully delivered record high volume points during the fourth, the third and the second quarters of 2018. Additionally, volumes depicted double-digit growth in four of the top five markets, for the third consecutive period.

Regionally, volumes rose 12% in the United States. Volumes in North America as a whole increased 11.8%. In Asia-Pacific, volumes rallied 29.8%. Volumes in this region advanced for the fourth successive quarter. Further, the EMEA region witnessed its 35th straight quarter of volume point improvement, up 11.3%. Volumes in China improved 3.7%. The same in Mexico rose 10.1%, backed by favorable comparison. However, in South & Central America volumes declined 9.4%.

Gross profit came in at $960.7 million, up 8.7% from the prior-year quarter’s figure. Moreover, gross margin expanded nearly 20 basis points (bps) to 81%, courtesy of higher retail pricing as well as favorable price mix. These were countered by currency headwinds as well as adverse cost changes stemming from sourcing and self-manufacturing.

Further, operating income during the quarter came in at $ 148.2 million, which inched down 0.6% from the prior-year quarter’s tally.

Herbalife LTD. Price, Consensus and EPS Surprise

Other Financial Updates

Herbalife Nutrition ended the quarter with cash and cash equivalents of $1,198.9 million and long-term debt (net of current portion) of $1,774.9 million. Total shareholders’ deficit amounted to $723.4 million as of Dec 31, 2018.

Further, the company generated cash flow from operating activities of approximately $648.4 million during 2018.

Outlook

Management provided outlook for 2019. The company anticipates net sales to advance 4-8%. After considering currency fluctuations, sales are projected to rise 5.7-9.7%. Meanwhile, volumes are expected to rise 4-8%. Further, adjusted earnings for 2019 are estimated in the range of $2.70–$3.10 per share, which is way below the current Zacks Consensus Estimate of $3.25. The company’s earnings view includes a negative impact of about 22 cents from adverse currency movements.

Adjusted effective tax rate for 2019 is expected between 27% and 31%. Capital expenditure is currently projected in the band of $135-$175 million.

Q1 Guidance

For first-quarter 2019, Herbalife expects net sales growth in the range of 0.5-4.5%. After considering currency fluctuations, sales are projected to rise 6.5-10.5%. Volumes are expected to rise in the range of 4-8%. Additionally, the company expects adjusted earnings per share (EPS) in the range of 60-70 cents, which is currently below the Zacks Consensus Estimate of 71 cents. Management’s guidance includes a negative impact of about 8 cents from adverse currency movements. Capital expenditure for the quarter is projected in the band of $30-$40 million.

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